(Rewrites throughout with details from court hearing)
NEW YORK, Aug 17 (Reuters) - Lawyers for car owners suing General Motors Co over faulty ignition switches and other defects on Thursday accused the carmaker of meddling in settlement talks and having issued threats that led to the canceling of an agreement.
Under a deal with a trust that holds many GM liabilities from before its 2009 bankruptcy, the automaker would have been forced to pay $1 billion in shares to resolve millions of claims.
The claims stem from GM's 2014 recall of 2.6 million vehicles with defective ignition switches, including one linked to 124 deaths. They have since expanded to include millions of financial loss claims and hundreds of personal injury and wrongful death claims.
The agreement, first disclosed at a court hearing last week, had been five months in the making and was confirmed, a plaintiff lawyer, Edward Weisfelner, told a New York bankruptcy court on Thursday.
Representatives of the trust had not yet signed the deal, but Weisfelner said he still considered the agreement enforceable.
But after a meeting with GM on Tuesday, the trust suddenly reversed course and in a court filing on Wednesday said it had accepted GM's offer to help pay for the trust to defend against the car owners' claims in exchange for dropping the agreement.
"We uphold, but have no reason to know this for a fact, that the trust's about-face was the subject of...some very direct, very serious threats issued either by GM or GM's professionals," Weisfelner said.
Lawyers for GM and the trust, who were also present in court, rejected the allegations.
"I was at that meeting. The concept that there were any untoward threats or anything illicit...it just did not happen," said Keith Martorana, an attorney for the trust.
GM's lawyer, Arthur Steinberg, said he did not consider the previous agreement between the trust and the plaintiffs to be binding because it had not been signed.
Bankruptcy judge Martin Glenn said he had to take allegations over threats seriously and ordered both sides to agree on a discovery process to unearth the details of the discussions that led to the agreements.
He also said he would not approve any of the settlements before the parties briefed him on how they would go about obtaining evidence.
"Anybody who negotiates a settlement with you better be careful as you might pull the rug out from underneath them after months of negotiations," the judge told Martorana.
GM said in a statement that it was optimistic its agreement would gain the upper hand.
"The judge has outlined a process to begin to resolve the issues raised. We will follow the process, and we look forward to the eventual approval of our settlement agreement," it said.
The original settlement would have called for the trust to accept $10 billion in claims to resolve about 11.9 million allegations over economic loss and between 400 and 500 personal injury and wrongful death claims.
About 2.4 million claims, involving vehicles sold after GM's bankruptcy, would have remained pending in another court. (Reporting by Brendan Pierson and Tina Bellon in New York; Editing by Grant McCool)